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Financial Planning for Millennials

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How Much Do You Really Need to Save to Buy a Home?


How Much Do You Really Need to Save to Buy a Home?

Contrary to popular opinion, the American Dream of homeownership is not out of reach for Millennials.

Millennials have earned a reputation for delaying traditional milestones, such as marriage and homeownership, that have been staples of the so-called American Dream. The homeownership rate among Millennials (born 1981-1997) ages 25-34 is down 8% compared to Baby Boomers (born 1946-64) and Gen Xers (born 1965-1980) in the same age group. This should come as no surprise as many Millennials are coping with financial burdens due to skyrocketing costs of college, rent, health care and more.  

Many Millennials want to buy homes but don’t believe they can afford it  

80% of Millennial renters want to purchase a home or condo, but 72% face a common obstacle: They believe they can’t afford it. The survey further revealed that based on their current rate of monthly savings and income, Millennials in large metro areas will need to wait at least a decade to save enough money to put 20% down payment on a home. 

Let’s put that into perspective.  

The median sales price for a home in Los Angeles is $862,000. You would need $172,400 to meet the 20% down payment to avoid paying PMI (mortage insurance) . If you are earning the average salary in Los Angeles ($62,588), you would need to save 27.55% of that annual salary over a 10-year period just to save up for a 20% down payment. Furthermore, house prices tend to rise with inflation and the present value of your money will decline at the rate of inflation.  

As another example, the median sales price for a home in San Jose, CA is $1,050,000, for which a 20% down payment would be $210,000. If earning the average salary of $84,368, you would need to save 24.9% of your annual salary over a 10-year period.  

Based on these numbers, it’s no surprise many Millennials shy away from home buying and choose to rent into late adulthood when their incomes are assumingly much higher. 

However, what many don’t know is that the days of the traditionally expected 20% down payment are long gone.  

Lower down payments open the door to homeownership  

In 2016, the average down payment on a house was 6% of the purchase price. Nowadays, first-time home buyers may qualify for loans with as little as 3.5% down.  

Making a 20% down payment has plenty of advantages, such as lower monthly payments and potentially lower interest rates, but coming up with a substantial cash sum is not within everyone’s reach – and that’s OK.  

The Bottom Line: 


Buying a home is a huge investment of your time and money. Before committing to buying a home, consider the time it will take you to save for a down payment and prioritize it with your other financial goals such as retirement or paying off other debt. Most cannot afford to put down 20% on a home to avoid paying private mortgage insurance, so be sure to investigate other financing options that will allow you to put less down on the home if home ownership is a priority.

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This data is for informational purposes only and Capital Benchmark Partners, LLC ("CBP") is not affiliated with any of the businesses mentioned nor endorses them. CBP is not endorsed by any third party entities for their inclusion in this article nor is compensated for mentioning them. Past performance is not a guarantee of future results. The information contained herein has been obtained from sources believed to be reliable but the accuracy of the information cannot be guaranteed.

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